Monday, May 3, 2010

LED Lighting: "Veeco Instruments: Buy on Weakness, Short-Term Profit-Taking Provides an Opportunity for Long-Term Investors - J.P. Morgan" (VECO)

Regular visitors know we are fans of CREE. [$12 to $83 in eighteen months makes one a fan]
I've never looked at Veeco but I've heard of this J.P. Morgan fellow.*
The stock is trading up 11% at $48.85. Maybe it's time to go into Abe Lincoln mode:
I will study and learn and some day my chance will come.
From Notable Calls:
J.P. Morgan is out defending recent high-flier Veeco Instruments (NASDAQ:VECO) this morning reiterating their Overweight rating and $75 price target.

Firm thinks the recent sell-off of VECO is overblown and continues to recommends the stock as their top pick. Although investors are worried about the MOCVD equipment cycle getting too hot and heavy, JPM remains unconcerned about weakness in LED industry fundamentals. They also believe weakness in the stock will be short-lived as they expect news flow over the next few months to be positive for LED demand and drive upside revisions unit demand for LED backlighting and general lighting applications. They are hosting a conference call on Monday morning at 10:30AM EST with the CEO of Veeco, John Peeler.

The current LED cycle is only at the top of the 3rd inning, in JPM view, and concerns about the cycle reaching its peak are overblown. This is not the same old 2 quarter up, 2 quarter down semi equipment cycle of the past decade. They think the current LED demand cycle is analogous to the semi cycle in the early 1990s when a very large new end demand driver, the desktop PC, drove significant growth in demand for the devices that enabled that product. They think the current penetration trajectory of LEDs for large area LCD backlighting will result in a long-duration multi-year capital spending cycle similar to what happened 20 years ago for semi device makers.

It’s a duopoly, and MOCVD equipment makers get deposits, which is not the case for most semi equipment makers....MORE
...Notablecalls: With the name down 10pts from it's recent $54/sh high (in just 4 days), we may see a bounce in the name.

Note that competitor Aixtron (AIXG) is already trading up ~5% overseas, following similar sell-off last week.

What I like from the trading perspective is the fact J.P. Morgan is hosting a 10:30 AM ET conf call w/ the CEO. He is going to do his best to push the stock back on track, thus providing support for the bounce.

The bears believe the outlook for 2011 becomes more risky as it remains uncertain if the current TV backlighting-related demand cycle will seamlessly transition into the general lighting cycle. In addition, the market entry of US heavyweight Applied Materials, which already announced that it customers at its analyst day on 30 March, could increasingly be seen as a risk factor. JPM comments & the upcoming conf call should alleviate some of these fears.

I'm thinking the stock can trade towards $46, with $47 level not out of question if the conf call goes well & the general market plays ball
*Years ago I was pitching private placements to some Merrill Lynch retail guys for their own accounts. Big brokers only.
One of the smaller (assets under management $200mil.) brokers I was going to talk to calls in and says something to the effect:

"This is Mr. Big at Merrill Lynch, I hear you have a private placement"

Moi: Merrill who?
"Merrill LYNCH"

Moi: This is Mr. Lynch?
"Listen you idiot, I'm a top producer with Merrill Lynch"

Moi: Merrill Lynch? Ya know Pierce, Fenner, Smith and Beane? CSNY? The ATSF?


Mr. Big, my ass.

I hummed the Judy Garland version of "On the Atchison, Topeka and the Santa Fe"

Warren Buffett bought the successor to the the ATSF last November.

This J.P. Morgan though, name seems familiar.
For those denizens of the Street I may have offended, here's a bit of Mother Merrill's history, on the occasion of the vote to merge with BAC:
Goodbye Merrill Lynch - 'Shame, Shame, Shame'
(Winthrop H. Smith: Address to the Shareholders of Merrill Lynch)